Russian investment platform a Ponzi scheme, experts say

A large number of Chinese get caught in cross-border fraud after pursuing high returns

Russia-based online financial platform MMM, a mutual finance community, announced Monday night it would start paying the debts in its old system for investors after the platform was accused of defrauding Chinese investors.

Media reports said that the platform had crashed in China as more than 1 million investors failed to withdraw their money from the MMM community in recent weeks.

“Since December 10, 2015, I’ve found my requests to withdraw money from MMM were denied,” an investor surnamed Chen in Yibin, Southwest China’s Sichuan Province, told the Global Times on Tuesday.

Chen said that he is worried he has been “trapped” in a scam by MMM.

According to a statement posted on MMM China’s website on December 25, the platform claimed that withdrawal requests from investors had been rejected because “all the measures we took to stabilize the situation failed” and “what we can do is to start a new system to avoid a crisis.”

The company couldn’t be reached by the Global Times as of press time.

Founded in Russia in 1994, MMM has operated in Israel, India, Indonesia, Malaysia and Thailand. It entered China in May 2015. It has about 130 million participants worldwide, its website showed.

The platform attracts money from private investors, promising monthly returns of up to 30 percent, and participants transfer money directly to each other, according to its website. After its restart, it offered 100 percent monthly returns to investors.

The platform shut down its old system because it couldn’t meet withdrawal requests by investors, and then it tried to attract more capital to fill the gap by starting a new system offering 100 percent monthly returns – a continuation of fraud, Lu Zhen-wang, CEO of Shanghai Wanqing Commerce Consulting Co, told the Global Times on Tuesday.

“The operation of MMM is a Ponzi scheme,” Lu said, noting that the platform was “doomed to crash” in China.

Apart from high promised monthly returns, participants could get incentives from MMM if they successfully introduced a new investor.

“One can get 15 percent of the capital that is transferred to others by the investor that he introduced,” Chen said.

Operating such an online financial platform violates the law of value and liquidity is hard to maintain in such cases, according to a statement jointly released by the China Banking Regulatory Commission, the Ministry of Industry and Information Technology and other authorities on November 11, 2015.

Investors could face great losses if the platform’s liquidity dries up, the statement said, warning that the public should be aware of the risks and report such cases to the authorities if they suspect a crime has been committed.

However, one investor who was unable to withdraw money from MMM did file a police report. But the authorities were unable to launch an investigation because the platform has no presence in China. There is no registration or office in the Chinese mainland, and even its server is located overseas, Shanghai-based news portal diggg.com.cn reported on December 29, 2015.

The government should act to make sure investors aren’t defrauded by such platforms, such as shutting down their websites, Lu noted.

“The promised returns from MMM are too high, which goes against common sense and implies high risk. Domestic investors should be more cautious when making investments on these platforms,” Shen Zhongxiang, an analyst at the Beijing-based market research firm Analysys International, told the Global Times on Tuesday.

Another investor named Liao Ming-yuan in Bijie in Southwest China’s Guizhou Province told the Global times on Tuesday that she has not received any money from MMM, even after the platform announced its so-called restart on Monday night.